Welcome to our presentation on how to value a professional practice. By professional practice, we refer to by a dental firm, medical practices, accounting and law firms, engineering consulting companies, health service companies, architects and other professional service firms. There are key differences between this type of businesses and other service businesses.
The first one is price sensitivity. The cost of the service is not as sensitive as a non-professional businesses. And clients usually value their professional advisor so highly that will pay what it is worth to get the right advice.
Again, professional people rely on their skills to attract business. In the early stage of the professional firm, this is the key driver of the business. Also you have a high intangible assets base. Since all assets within the professional firm are intangible, the owners need to come up with a way of making those assets transferable if there is to be value in the business. Due to the client relationship and the success of the practice depends on the client relationship, there is a high level of goodwill and trust flowing.
As much as possible the owner must endeavour to make the relationship with the firm more important then the relationship with the person. So how to value into the firm. The way to build value into the firm is to standardise the service offering. systemise the business and then show that there is a service ethic running through the firm. Become like a franchise so that the client gets treated the same way no matter who they are dealing with in the firm. Take your business from a personal business to a brand. Building the business in this way ensures that a purchaser or an investor would be comfortable to buy.
Ensure that this level of service will be provided no matter who within the firm is providing it. Staff will want to buy shares in the entity and investors will be interested in buying a piece of your firm if it’s set up like this. This way then, you have overcome the problem of realising value when selling a professional service business. When your professional practice becomes a brand you will attract more clients. Grow your business and provide a nice nest egg for your retirement and your investors.
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